By James Massola, Tom McIlroy, Fergus Hunter

UpdatedMarch 28, 2017 — 8.03pmfirst published at 7.44am

A Turnbull government plan to quietly ratify the China-Australia extradition treaty has collapsed, with mounting opposition from the Coalition backbench and Labor's decision to oppose the treatycausing the government to withdraw it from Parliament.

Opposition Leader Bill Shorten rang Prime Minister Malcolm Turnbull on Tuesday morning at 8.40am to inform him Labor's shadow cabinet had decided on Monday night it would not support ratification of the extradition treaty.

At 8.50am, Mr Turnbull rang Mr Shorten and told him he would pull the treaty, a humiliating backdown for the Prime Minister that comes just days after Chinese Premier Li Keqiang visited Australia.

The decision has forced the Turnbull government into damage control, with Foreign Minister Julie Bishop confirming the government had pulled the treaty for now and that she would pursue an agreement from the ALP over the deal in the future.

"It is in Australia's national interest to ensure that we can send back to China those that have committed crimes, subject to the significant safeguards we have in place. I have faith in our legal and political system to ensure those safeguard would work," she said.

When Mr Shorten formally advised the Prime Minister of Labor's opposition, "we decided that the best thing in those circumstances was to repeal the treaty regulations and continue the discussions with Labor".

Ms Bishop said the treaty was important to facilitate counter-terrorism co-operation and co-operation between police agencies tackling the drug trade. She said the treaty was linked to a prisoner transfer deal also struck back in 2007.

"Clearly the whole idea of foreign policy is to engage with other countries on the basis of trust... China has asked us to hold up our end of the deal," she said.

"It serves the needs of both sides. We hope the Australian side can bear in mind the long-term development of bilateral relations."

Labor's decision not to ratify the treaty effectively ensured it would be disallowed in the Senate by a combination of their 26 votes, the nine Greens, the three members of Nick Xenophon Team and Senator Cory Bernardi.

The Prime Minister's decision to pull the treaty and avoid defeat in the Parliament is embarrassing for Ms Bishop, Deputy Prime Minister Barnaby Joyce and Trade Minister Steve Ciobo, who all publicly defended the deal on Tuesday morning before the Prime Minister and his leadership group decided to reverse course.

Ms Bishop insisted the decision had not been a "captain's call" and pointed out it had been Liberal Party policy to ratify the treaty since John Howard first signed it in 2007.

Fairfax Media revealed on Monday evening that Ms Bishop and Justice Minister Michael Keenan had stepped in to quell a backbench revolt over the looming ratification of the extradition deal, which had been signed under the Howard government in 2007 but has not come into effect.

Ms Bishop confirmed she had heard concerns at the meeting about the treaty but added: "I don't recall any of those now raising concerns raising concerns during the treaty-making process".

Before the decision to drop the treaty, Ms Bishop said she disagreed with Mr Abbott's criticisms and spruiked the safeguards contained in the treaty.

The Foreign Minister said Australia could block extraditions if the person might be executed, subjected to inhumane treatment or receive an unfair trial.

Mr Joyce warned it would be foolish of the Senate crossbench and Labor to kill the agreement, which was signed by the Howard government 10 years ago but not ratified, but conceded Coalition MPs also had concerns.

"If you go out and make some grand statement in the Senate today, it's just foolishness and I can't believe, to be honest, that the Labor Party is going to participate in this," he said.

Trade Minister Steve Ciobo warned the collapse of the treaty could affect three Crown Resorts employees being held in China. It is not clear how this could be the case, given the men are in China and being held by law enforcement officials.

Labor foreign affairs spokeswoman Penny Wong said her party took very seriously the extradition treaty with the People's Republic of China and "we remain deeply committed to the bilateral relationship".

"We appreciate the Chinese government was very clear about wanting this treaty to be ratified at this stage, however, we believe that the dissenting report of the Labor members on the [Joint Standing Committee on Treaties] which was tabled some time ago, expresses a very sensible position and that is: the Extradition Act, the domestic legislation governing extradition treaties needs to be properly review," she said.

James Massola is south-east Asia correspondent, based in Jakarta. He was previously chief political correspondent for The Sydney Morning Herald and The Age, based in Canberra. He has been a Walkley and Quills finalist on three occasions.